October 04, 2011

Yesterday, a good friend of mine casually mentioned - "You know, I pre-ordered the Amazon Fire". If reports are to be believed, 95,000+ others made the same decision. Why is this important? Well for one compare it to RIM's performance in the second fiscal quarter - only 200,000 Playbooks were sold in the entirety of that time. The Kindle Fire is not an amazing innovation by any means. It has a dual core processor, 8 GB HDD, 512 Mb RAM, NO CAMERA, and limited access to applications - by any measure this is mediocre hardware. BUT it costs $199! ONLY $199!

This is where Jeff Bezos did something smart - something which other hardware manufacturers cannot do. Hardware manufacturers (Samsung, Motorola) have one problem - they are hardware based. Which means that if Apple holds all hardware aquisition contracts for tablet hardware, they have to work around it by charging more for their device. Because thats all they have...the device. And because they hold this position, the companies (including Apple) have to continuously fight a losing battle - cutting edge hardware technology.

Bezos took an alternate position - he decided his company could make money off cloud content instead of the device. He should know - he has been working hard to make Amazon one of the best cloud based information service out there. Now all he needed was a platform to access this content - an Amazon branded platform. A "cheap" Amazon branded platform.

So what does he do? He waits. Rob Wheeler in his HBR post suggests why waiting is a good thing for disruptive innovation. He says that "Disruption occurs given two criteria. The first: that incumbents move upmarket to the most profitable segments, ignoring low-end competitors at the bottom of the market. The second: that the low-end competitor introduces a product with a scalable technology or business model advantage at its core that has the potential to displace the incumbent."

When the time was right, Bezos picked the platform that was most on a trajectory to failure - the RIM Playbook. By using the RIM Playbook as a hardware template (he hired Quanta, the same company that designed the Playbook, to design the Fire), Bezos dramatically reduced his front end design costs; by using technology that is just right (not cutting edge), Bezos reduced his supply chain costs; AND by using the same hardware platform, Amazon gave Quanta breathing room .

Now that Bezos had the price he wanted, he could focus on the experience. The Fire is so compelling, not because it is the fastest, or the lightest, or has the best camera. But because it is the BEST cloud information device out there. Better than the iPad, better than Android, and better than WP7 or 8. And Fire will change the way we interact with the cloud!

My friend invested wisely. Fire is the new iPhone. Fire is the new disruptor.